China Lowers 14-day Reverse Repo Rate

china-lowers-14-day-reverse-repo-rate

China’s central bank conducted a reverse repo operation at a lower rate on Monday in order to improve liquidity in the financial system, the latest move in a series of measures undertaken to support a slowing economy.

The People’s Bank of China injected CNY 10 billion via 14-day reverse repos at an interest rate of 2.15 percent compared to the previous 2.25 percent. The bank also conducted CNY 2 billion 7-day reverse repo operations at an unchanged rate of 2.00 percent.

The PBoC said the move aims to maintain stable liquidity in the banking system.

In August, the central bank had cut the medium-term lending facility rate, and also its five-year loan prime rate to reduce the interest burden of existing loans.

Markets widely expect policymakers to respond with more measures as the economy faces property downturn, depressed credit demand amid the zero COVID policy on the domestic front, and the tech rivalry and weak demand globally.

The central bank faces the dilemma of lending support to the struggling economy and at the same time to avoid further weakening of the currency. The recent tightening stance of PBoC’s major counterparts has resulted in the yuan’s depreciation.

The Chinese government is mulling a package of more than CNY 200 billion to provide commercial banks with funds in order to scale up lending to companies and in turn underpin the economic recovery.

The economy had expanded only 2.5 percent in the first half of this year, well below the government’s full year target of around 5.5 percent.

Official data released on Monday showed that foreign direct investment into China grew 16.4 percent in the January to August period from the same period last year.

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